Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

What Happens When the Stumble-Through Economy Stalls

Economics / Coronavirus Depression Oct 10, 2020 - 05:08 PM GMT

By: John_Mauldin

Economics

Our economic prospects looked bleak back in March and April. Much of the economy was closed down, we didn’t know how bad the virus would get, and it was hard to see a good outcome.

Now the outlook is relatively better. Unemployment, GDP, and other indicators aren’t great but they’ve improved. Yet a “better” outlook isn’t necessarily a good one. It’s just “not as bad.”

Today’s numbers would be considered terrible if we weren’t comparing them to truly disastrous numbers from last spring. We avoided the worst because fiscal income replacement and business lifelines maintained consumer spending, and in some cases increased it.

If you fly a lot as I do (or used to), you’ve heard the term “stall speed.” An airplane needs to go a certain speed in order to stay aloft.


The math behind that idea is pretty simple: Lift from the wings must be equal to or greater than the plane’s weight. Lift, in turn, comes from the engine creating forward motion relative to the air. No air flow over the wings means no lift and no flight.

In economic terms, we stayed above stall speed by forcing extra fuel into the engine. The resulting forward motion gave the economy the lift it needed. Now the fuel is running out.

If this plane stalls, as is a real possibility, we won’t like the result.

Unlike airline passengers, we don’t all share the same forward momentum. Some of us are even going backward.

Income loss comes mainly from job loss. This year’s job losses have been concentrated in lower-wage service jobs.


Chart: BLS

Unemployment rose across the board but was much higher for those with less education. As of August, the headline unemployment rate was 8.4%, but it was 11.8% for non-high school graduates and only 5.6% for college graduates.

Continued unemployment claims from states suggest the monthly report undercounted the jobless workers. I assume there was some seasonal adjustment that made the difference, but seasonal adjustments are worthless during this crisis.

“U-6” unemployment is a far better indicator of where we really are.


Table: BLS

My good friend Mike (Mish) Shedlock does an extraordinarily good job tracking the vagaries of unemployment during this crisis. Including both state and federal benefits shows a far larger number.

The chart below includes gig workers, the self-employed, people who have exhausted their state benefits, etc.


Source: Mike Shedlhj ock

People are still falling through the cracks. We just have no way to measure it.

As I mentioned, U-6 is 14.3%. I’ll bet you a dollar to 47 doughnuts that real unemployment is closer to 16%. The rest of Mike’s post points out that while things are improving, the rate of improvement is slowing down. But back to my main point.

For a while, “unemployment” didn’t necessarily mean income loss because Congress temporarily increased jobless benefits by a flat $600 weekly, while also sending out $1,200 per person checks, actually raising some workers’ incomes. That expired at the end of July. Trump’s stopgap measures have replaced some of it, in some states, but the amounts are much smaller.

This is already showing up in consumer spending. Banks can track this because most of the benefits are delivered electronically. They can analyze spending patterns for unemployment benefit recipients vs. everyone else. Here is what happened at Bank of America in August.


Source: Ernie Tedeschi

As benefits dropped, bank card spending growth fell for UI recipients while continuing to grow for everyone else. The drop was worse for lower-income consumers.

This shouldn’t surprise us. Long before COVID-19, a large part of the population spent practically all its income. Those who lost their jobs in March/April and haven’t been rehired have little choice but to cut spending. They have no reserves and little borrowing ability.

A few years ago, I wrote that 60% of America had less than $500 in savings. I haven’t seen recent data, but it is hard to imagine it’s gotten any better.

The point back then was that Americans were living paycheck to paycheck. The point now is that many Americans are living unemployment check to unemployment check.

It’s easy to forget that the enhanced unemployment benefits helped more than the unemployed people. In many cases, the “recipients” were simply conduits. They received money from the government and immediately sent it on to their lenders and landlords. The fiscal stimulus kept those people afloat, too. And its ending will hurt them, too.

In fact, the income loss hits across the board. Bank of America also knows where unemployment recipients have been spending, since it processes their card transactions.


 Source: Ernie Tedeschi

We see spending affected most in discretionary items like clothing, but also in grocery stores. And remember, this is only just beginning. Benefits payments come in arrears, so many people still got the higher amount in early August.

Quick math: If 20% of the adult population reduces spending 25%, the net effect is consumer spending falls 5%.

That, alone, leads to an even deeper stall-speed recession.

It will generate more layoffs and bankruptcies, meaning more unemployment, until something gives the economy the lift it needs.

Without that lift, even more parts of this stumble-through economy are at risk of stalling out.

The Great Reset: The Collapse of the Biggest Bubble in History

New York Times best seller and renowned financial expert John Mauldin predicts an unprecedented financial crisis that could be triggered in the next five years. Most investors seem completely unaware of the relentless pressure that’s building right now. Learn more here.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules